Quiz 5: Chapter 7 & 8

intra-entity gains among affiliated members of the consolidated entity & undistributed earnings of less-than-80% owned subsidiary companies

potential sources of temporary differences across taxable and financial reporting income when members of a consolidated entity file separate tax returns include

revenues from external customers transaction revenues from other operating segments interest revenue/expense depreciation, depletion, and amortization expense equity in the net income of investees significant noncash and unusual items income tax expense or benefit

segment profit or loss must be disclosed if it regularly provided to or included in the measure of segment profit or loss reviewed by the chief operating decision maker

profits to be reported in the period of transfer and thus the income is taxed deferred tax is created

separate tax return treatment of intra-entity gains: ?

the immediate taxation of intra-entity gains (and losses) possible future tax effects of subsidiary income in excess of dividend payments

sources of temporary differences include:

revenue test profit or loss test asset test

tests for identifying operating segments for which separate disclosure is required

discrete

the accounting period stands on its own

integral

treat the accounting period as a portion of a longer period

10%

what is the magical percentage for the tests?

quarterly

the SEC requires publicly traded companies in the United Stated to provide unaudited financial statements on a __________ basis

separate return method

the expense charged to the subsidiary often is based on the appropriate taxable income figures if separate returns were filed.

percentage allocation method

the expense charged to the subsidiary often is based on the percentage of the total taxable income from each company

10

a reporting entity must indicate its reliance on any major external customer whenever ___% or more of a company's consolidated revenues is derived from a single external customer

75 revenue

an entity has reported a sufficient number of operating segments separately when at least ____% of consolidated _________ has been reported by individual segment

intra-entity transfers yes

any dividends on shares of the parent held by the subsidiary are considered _________ ____________ ____________. do they have to be eliminated upon consolidation?

no

are companies required to publish balance sheet and cash flow information in interim reports?

no

are shares of the parent held by the subsidiary treated as outstanding shares?

no

are there interim disclosures about major customer or geographic areas?

no

do cash flows have to be presented for each segment?

no

do tax laws allow a company to switch back and forth between consolidated and separate returns?

yes

do temporary differences emerge across income recognized from consolidated financial reporting and for income tax reporting?

GAAP

does not define what to include in long-lived assets

GAAP

does not permit operating segments to be based on geographic area

GAAP

does not systematically amortize goodwill for financial reporting purposes but instead reviews it annually for impairment

connecting affiliation

exists when two or more companies within a consolidated entity own an interest in another member of that organization

revenues from external customers long-lived assets for: (1) the domestic company (2) all foreign countries in total of which the enterprise derives revnues or holds assets

for companies with international activities, two items must be reported:

revenues from transactions with external customers

for each individual foreign country in which an entity has a material amount, it must report

factors used to identify reportable operating segments

general information about each operating segment that is required to be disclosed?

valuation allowance

if a parent concludes that the probability of reducing future tax payment from an acquired NOL carryforward is less than 50%, then the parent must offset the NOL carryforward asset with a ___________ ___________

the amount (or percentage) or revenue from that customer the operating segment that generate revenues from that customer

if an entity has a major customer it must disclose..

20

if less than 80% of a subsidiary's stock is held, ____% tax recognition is necessary

the company incurring the loss

operating loss carryforwards can only be used by who?

IFRS

permits operating segments to be based on geographic area

GAAP

requires disclosure of total assets and is silent on liabilities

IFRS

requires disclosure of total assets and liabilities

IAS

requires taxes paid by a selling firm on intra-entity profits to be recognized as incurred and allows tax deferral on differences between the tax bases of assets transferred across entities that remain within the consolidated group

the domestic country all foreign countries where the enterprise derives revenue or holds assets each foregin country in which a material amount of revenue is derived or assets are held

revenues from external customers and long-lived asset must be disclosed for:

80 80

to include a subsidiary within an affiliated group, parent must have (direct or indirect ownership) of at least ___% of the voting stock and at least ___% of each class of nonvoting stock

segment reporting

to provide information about the different business activities in which an enterprise engages and the difference economic environment in which it operates to help users of financial statements

true

true/false a connecting afilliation is formed when two or more companies within a consolidated reporting entity own an interest in one of the affiliated companies

treasury shares

what are shares of the parent held by the subsidiary called?

may carry such losses back for two year and apply them as a reduction to taxable income figures reported carryforward for subsequent 20 years is allowed

when a company incurs a net operating loss (NOL) in a particular year, tax rules allow the NOL

liability

when a parent owns less than 80% of its subsidiary company, undistributed subsidiary earnings create a temporary difference that requires recognition of a deferred tax __________

true

true/false compared to a parent with a single subsidiary, a consolidation worksheet for a father-son-grandson affiliation will combine the companies' assets and liabilities in a similar fashion

domestic subsidiary 80% - 100%

may file as a part of the consolidated return or may file separately

domestic subsidiary > 80% foreign subsidiary

must file separately

defensive

mutual ownership is a __________ strategy

GAAP

prohibits the recognition of unrealized intra-entity profits on asset transfers; therefore, the selling firm defers any related current tax effects until the asset is sold to a third party

accrual based

regardless of the position of a subsidiary within a connecting affiliation, the determination of the consolidated net income attributable to the noncontrolling interest is based on each subsidiary's _________-_________ net income

true

true/false mutual ownership occurs when two companies within a consolidated reporting entity own an equity interest each other

false

true/false when an acquired company has an unused net operating loss (NOL) carryforward, the parent company can use the NOL carryforward to offset the parent's future taxable income.

100

when a parent's ownership of a subsidiary's equity shares exceeds 80%, tax law provides for a _____% dividends received deduction in computing federal income taxes

deferred

when temporary differences exist between an asset's book value and its tax basis, financial reporting requires recognition of a ____________ tax asset or liability

a deferred tax liabilities is recognized by the consolidated entity

when the acquisition-date fair value of a newly acquired subsidiary depreciable asset exceeds its tax basis....

reduce

when the acquisition-date fair value of an acquired subsidiary depreciable asset exceeds its tax basis, the resulting referred tax liability serves to ________ income tax expense recognized over the asset's useful life.

companies solely in a subsidiary position

within a connecting affiliation, determining accrual-based net income begins with..

sales or gross revenues provision for income taxes and net income earnings per share seasonal revenues and expenses significant changes in estimates or provisions for income taxes disposal of a component of the business and unusual or infrequently occurring items contingent items changes in accounting principles or estimates significant changes in financial position

authoritative accounting literature requires companies to provide minimum information in their interim reports for:

integral

FASB requires companies to use the ___________ approach for interim reporting

revenues from external customers intersegment revenues segment profit or loss total asset

GAAP requires the following interim disclosure for each reportable operating segment:

discrete

IAS requires iterim period to be treated as a ________ period in determining the amounts to be recognized

included

Pop's $2,400 dividend to Son is ____________ in the net income attributable to the noncontrolling interest

managemen

____________ approach for determining segments

retrospective

_________________ application of a new accounting principal

deferred tax liability

a _________ is recorded for the taxable portion of income not paid to the parent during the year

revenues expenses

a business segment must earn BOTH _________ and ___________

$3,000

a parent owns 70% of its subsidiary. During the current year the subsidiary reports before tax net income of $50,000 including $10,000 of intra-entity ending inventory gross profits. If the subsidiary's tax rate is 30%, what amount should the consolidated entity recognize as deferred tax asset?

intra-entity profits are not taxes until the asset leaves the consolidated entity losses incurred by one affiliated company can be used to reduce taxable income recognized by other group members

benefits of filing a consolidated tax return

not taxed until the asset leave the group

consolidated tax return treatment of intra-entity gains: ?

subsidiary's cost is retained for tax purposes allocations for tax purposes vary from those used for financial reporting

in most purchases, book values of acquired company;s assets and liabilities differ from their tax bases because

IFRS

includes intangible assets as long-lived assets

general information segment profit or loss total segment assets

information that must be disclosed about each operating segment

liability

assume a less-than-80% owned subsidiary recognizes net income in excess of current year dividend payments. for consolidated financial reporting, a deferred tax _________ is created

consolidated income before income taxes

in accordance with authoritative guidance, an enterprise must provide a reconciliation between the total of reportable segments' profit and loss and ...

80 partially

intra-entity dividends are removed from the income only if at least ____% of the subsidiary's stock is held. They are taxed __________